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Partnership representative with substantial USA presence for Canadian and/or non-USA resident Partners in USA Partnership

IRC Section 6221(b) centralized partnership audit regime is new for 2018 and requires all partnerships to designate a partnership representative* for the partnership tax year on its timely-filed federal income tax return requiring:

  • Name of representative designated by partnership

    • the partnership representative must have a substantial presence in the United States

    • If an entity, then also need an individual’s name and all info requested here – but now for the individual too

      • If the partnership appoints an entity as the partnership representative, however, it must also identify an individual with a substantial U.S. presence and capacity to act on behalf of the partnership

  • USA address of representative designated by partnership

  • SSN (or other TIN) of representative designated by partnership

  • Telephone number of representative designated by partnership

 

*The partnership representative may be a partner or a non-partner, and an individual or an entity. The partnership representative is granted the sole authority to act on behalf of the partnership and its partners in all partnership proceedings with the IRS, including the sole authority to settle a dispute, agree to a notice of final partnership adjustment, elect to push out an IRS adjustment to the reviewed-year partners, and extend the period of limitations on assessment.

 

Alternatively, IF ELIGIBLE, you could opt-out via election on the tax return. If the partnership elects out, there is no need to designate a representative.

 

A partnership consisting only of two Canadian spousal partners without a substantial presence in the United States (for themselves or someone suitable they already know and trust) may not desire the opt-election since (i) such two spouses are the sole partners of the partnership and such opt-out generally makes sense to consider only for a partnership with third party investors where there potentially could be conflict between the partnership and its partners in terms of whom IRS holds responsible in partnership-level audit and/or audit adjustments  and (ii) the IRS has stated that it will closely scrutinize all elections-out and will increase audits of partnerships that have made such elections – so why put themselves in that position for no gain or cause (other than saving the trouble of finding a USA rep).

 

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